Question

Suppose you purchase a $1,000 TIPS on January 1, 2016. The bond carries a fixed coupon of 1 percent. Over the first two years, semiannual inflation is 2 percent, 3 percent, 1 percent, and 2 percent, respectively. For each six-month period. Calculate the accrued principal and coupon payment.

Accrued Principal Coupon Payment
First 6 months $ $
Second 6 months $ $
Third 6 months $ $
Fourth 6 months $ $

Answer 1

The computation of the accrued principal and coupon payment is shown below:-

Step-by-step explanation:

The computation of the accrued principal and coupon payment is given below:-

Accrued principal Coupon payment

First 6 months $1,020 $15

$1,000 × (1 + 0.02) ($1,000 × 3% × 1 ÷ 2)

Second 6 months $1,050.60 $15.759

$1,020 × (1 + 0.03) ($1,050.60 × 3% × 1 ÷ 2)

Third 6 months $1,061.106 $15.92

($1,050.60 × (1 + 0.01)) ($1,061.106 × 3% × 1 ÷ 2)

Fourth 6 months $1,082.32 $16.23

($1,061.106 × (1 + 0.02)) ($1,082.32 × 3% × 1 ÷ 2)